Gold Prices Lead The Way For Commodities

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When we study Liquidity Wave relationships, we love it when we can find one set of data that leads the movements of another set of data. One of the best of these is the way in which gold prices pave the way for movements in commodities prices.

In this week's chart, the price of gold is shifted forward by 75 trading days, or almost 4 months. Making this adjustment helps us to see that the movements of the CCI tend to echo similar movements that happened in gold prices.

In this usage, CCI is short for Continuous Commodity Index. It is the new name for what used to be called the CRB Index, named for the Commodities Research Bureau which created and maintained it. The current version of the CRB Index is actually now called the Reuters Jeffries CRB Index, and it is more heavily weighted toward energy commodities, than the CCI.

I should also point out that the abbreviation CCI also refers to the Commodity Channel Index, which is an oscillator created by Don Lambert, and which a lot of technical analysts like to use to track price movements on a variety of price data. It is not related to the Continuous Commodity Index, although one can use the CCI indicator on the data for the CCI commodity index.

The leading indication that gold gives for commodities prices also works on the current version of the CRB Index, as well as on oil prices. Agricultural commodities have a higher weighting in the CCI than in the new CRB Index. So the recent surge in grain prices has pushed the CCI up faster than the new CRB Index, which is just now moving above its own January 2010 highs.

What is clear in this week's chart is that the price movements we see in gold tend to show up about 4 months later in commodities prices. These relationships should only be used for drawing inferences about the direction of price movements, and not for projecting price levels. The current surge upward in the CCI echoes a similar up move in gold prices, and gold's price pattern suggests that this commodities surge is now reaching a top of some kind. But the fact that gold is currently continuing to make higher highs suggests that the commodities prices should have higher to go after they undergo a brief rest period.